Eurozone government borrowing costs sank to historic lows yesterday as investors increased bets that the European Central Bank would take aggressive action to avert a deflationary slump, following early data indicating that the region’s recovery slowed in August.
The “flash” purchasing managers’ index for the currency bloc fell to 52.8 from 53.8 in July, Markit said, amid signs that geopolitical tensions were hurting sentiment among eurozone manufacturers. While the figure is above the crucial 50 mark, which signals an expansion in activity, momentum appears too subdued to create jobs in a region where unemployment is in double digits. The PMI data “fit with the story of weak growth and low inflation, which make it more likely that the ECB will have to act”, said Alessandro Tentori, head of rates strategy at Citigroup.
Amid calls for the ECB to start quantitative easing to rid the region of the threat of stagnation, president Mario Draghi will today speak at the central bankers’ Jackson Hole summit in the US. Any ECB action to start QE could see eurozone government bonds being bought on a large scale.